It was an honor to give the keynote lunch speech on how institutions matter to weather economic uncertainty at today's Commerce Street Capital's 15th Annual Bank Conference in Dallas. Here's the presentation.

​Texas Governor Greg Abbott said in his State of the State speech, “We must continue to cut the business franchise tax until it fits in a coffin.” He is correct, and legislators from both sides of the aisle are making that case.

After cutting the franchise tax rates by 25 percent last session for savings of $2.6 billion, the Texas Senate and House have legislation moving through the process that would put the franchise tax, also known as the margins tax, on a path to elimination. This is essential because businesses do not pay taxes; people do in the form of higher prices, lower wages, and fewer jobs available. The Foundation recently testified for Senate Bill 17 and House Bill 28 that would accomplish this goal.

The Senate passed SB 17 and it is waiting to be heard in the House. SB 17 is a tax cut “trigger” bill whereby half of the estimated general revenue for the upcoming biennium that exceeds a 5 percent increase from the prior biennium would trigger a cut in the margins tax rates each budget period until elimination.

Table 1 presents what could have happened if this legislation would have been in effect since the 2013 legislative session. To simplify the analysis, I’ve considered only a static analysis that doesn’t account for potential increases in economic growth and additional tax collections from cutting the margins tax. The expected growth rate in the 2014-15 biennium by the Comptroller in the 2013 Biennial Revenue Estimate was 12.4 percent. This rate times the initial general revenue (GR) funds balance of $90.2 billion gives a tax cut of $3.3 billion, or a 36 percent cut in the franchise tax revenue of $9.4 billion. The cut leads to a reduction in the 1 percent rate on businesses that are not wholesalers or retailers to 0.64 percent. After reducing the GR funds balance by the amount of the franchise tax cut in the next two sessions, again not assuming any actual dynamic economic growth and resulting increases in other tax collections, the tax is reduced to a rate of 0.4 percent, with $3.8 billion collected in the 2018-19 biennium.

The House Ways & Means Committee recently passed HB 28, and there is a good likelihood it will be passed by the full House. HB 28 would use the lesser of either surplus dollars at the end of a fiscal period or $3.5 billion to buy down the margins tax rates, and would abolish the tax when the rate reached 15 percent or less. Table 2 shows a similar scenario with a static analysis as in Table 1. The 2013 Certification Revenue Estimate notes that the GR ending fund balance (surplus) was $5.5 billion, which provides a $3.5 billion franchise tax cut. This cut reduces the 1 percent tax rate to 0.63 percent. In the subsequent two sessions, the franchise tax is cut another $3 billion to give a tax rate of 0.31 percent and collections of $2.9 billion.

While these two bills would each make substantial cuts in the franchise tax, what if these two bills were combined so high revenue growth and surplus dollars could be used to eliminate the margins tax as quickly as possible?

Table 3 presents the scenario where both of these bills are in place in a static analysis. The combined tax cut in the 2013 session could have been $6.8 billion, reducing the 1 percent tax rate to 0.27 percent. After reducing the ending fund balance and the initial GR funds balance by this tax cut, there is sufficient revenue to cut the tax by $3.6 billion in 2015, which more than eliminates the margins tax.

While this leaves less revenue in the ending fund balance in 2017, we must consider that this simple analysis forgoes the consideration of dynamic economic growth and resulting increases in other tax collections. Table 4 highlights research showing that there is a dynamic effect as elimination of the margins tax could contribute to as much as $16 billion in new personal income and about 130,000 new private sector jobs over five years above the status quo when considering the reduction in tax payments and compliance costs. If you just consider the reduction in tax payments, even the most conservative estimates indicate $5 billion in new personal income and almost 42,000 new private sector jobs five years after elimination.

We applaud the efforts made so far by state leaders to eliminate this onerous tax.

​The piece below arguing for the benefits of Chapter 313 is just the latest of many examples of those lobbying for particular groups (rent seekers) than for taxpayers. Moreover, these instances are blinded either purposefully or stupidly from the unseen costs of Chapter 313-type forms of government-determined corporate welfare, wrongly called "economic development."

Competition is what allows markets through voluntary exchanges determine efficient prices that support economic growth and innovation. Corporate welfare destroys competition and makes society poorer in the process.

Crony corporatism has too often been loosely replaced as crony capitalism, but these two are mutually exclusive terms.

Capitalism is not crony. The issue is when capitalism is distorted by socialist policies, such as economic development, minimum wages, welfare, etc. that redistributes income and wealth by a less knowledgeable government compared with the vast knowledge of the marketplace.

This piece and others indicate that those supporting crony corporation are feeling the pressure. Liberty-loving, free market-appreciating folks must continue the good work!

​​Here's an interview I recently did with Todd Davidson of the State Policy Network.

The Texas Legislature adopted the lowest spending growth rate limit based on population growth and inflation instead of the statute-based on a higher personal income growth rate for the upcoming two-year budget in decades. That win would likely not have occurred if it were not led by Dr. Vance Ginn, Economist, and his colleagues at the Texas Public Policy Foundation. Vance and his colleagues at the Foundation shared their robust research on how to achieve a fiscally responsible budget, and the crew molded the messaging that connected with their audiences, giving lawmakers cover to pass legislation.

Vance and TPPF’s wins don't come overnight, it was a long journey that included a stint in a rock band and a hospital. I recently sat down with Vance to discuss how he developed himself into a policy leader.

Todd: Economist has not always been your job title, what started you down this path?

Vance: That’s true, in fact my title used to be drummer. Growing up in a lower income household in a rough neighborhood in the city of South Houston, the emphasis was on survival instead of education. After dealing with behavioral challenges and drumming in a rock band in my early adult years, my life’s trajectory abruptly changed when I was in a major car accident that sent me by life-flight to a hospital in Houston.

After months of prayer while recuperating from non-life threatening injuries, I started to think about my purpose. What drives me. I felt a strong conviction to help others and felt solving problems through academic research would be my purpose. This led me to be a first generation college graduate and eventually earning a doctorate degree in economics from Texas Tech University.

However, I was soon frustrated with the academic community where few people read published journal papers, making it very difficult to create real change. Fortunately, I had the privilege of being a Koch Summer Fellow with the Texas Public Policy Foundation during my dissertation process. This experience was another tipping point in my life that directed me towards a career in public policy.

Todd: Since you started at TPPF, you have taken very specific steps to create opportunities. Tell me about what you have done.

Vance: I soon discovered that to assure abundant opportunities to influence the public debate, it was important for me to build and maintain my brand. As I built my brand, I looked around to see what seemed to work well for others. There is no perfect path. I tried many options and learned from failures along the way.

For me, I realized my doctorate degree and TPPF’s reputation for producing high quality policy research was my comparative advantage, so I built my personal brand around that.

To build and maintain my personal brand, I have created resources for others through a Facebook group “Vance Ginn Economics” and a website www.vanceginn.com. I use these resources to share my TPPF research, academic publications, and other articles on related issues.

Because of that work, I frequently get media interviews and opportunities to advise policy makers. Those opportunities to reach the public and have early conversations with policy makers cultivate the ground to advance policy reforms.

Todd: Has that work led to any significant victories?

Vance: My personal brand certainly would never be the only thing that led to a win but it has been very helpful. We have had many policy wins in Texas, mostly because of the great work of my colleagues and sister organizations. These include researching and molding the message on why the Texas Legislature should pass a budget that increases by no more than population growth plus inflation, which they did for the first time in four years in 2015. However, after that 2011 session, they increased the budget substantially more than population growth plus inflation in 2013, so there is much work to do to assure that the 2017 Legislature passes the second consecutive conservative budget, which hasn’t been done in at least two decades.

By passing a conservative budget last session, the Legislature was able to return the remaining tax revenues to Texans. This savings to taxpayers amounted to $4 billion in the form of a cut in the costly business franchise tax, relief to homeowners of rising property taxes, and elimination of other minor taxes and fees. By focusing our research on the fact that Texas had a spending problem and not a revenue problem, we were able to help achieve a more prosperous future for Texans, which is the goal.

Todd: Do you feel like you are fulfilling your purpose of helping others?

Vance: I do. The dynamic economic study that I wrote on eliminating the state’s business franchise tax contributed to the Legislature cutting the tax rates by 25 percent last session. There is a movement to eliminate it this session, which I estimate will generate $16 billion in new personal income and contribute to employers creating 130,000 new private sector jobs over five years above the status quo. This economic growth and government spending restraint will keep legislators from enacting another tax that restricts them from acting to satisfy their desires. It is rewarding to think of all the families helped by that reform and the many more that will be helped when this tax is eliminated.

Todd: It’s always great chatting with you, Vance. To finish up what advice would you offer to policy professionals wishing to expand their influence?

Vance: 2 things have really helped me out.

Start with why. If you start with why in the major choices you make throughout your career and personal life, you will be in a much better position to have a satisfied career and better influence change.

Build your personal brand around your why. This will keep you genuine and consistent, and overtime it will help you get recognized.

It is not only where we come from that makes us who we are today or whom we will be, but it is also what we learn along the way that helps us fulfill our hopes and dreams. Mine started rough with few positive things going for me; now I am living my dream. May you do the same by starting with why.

The Texas Senate passed an education choice bill (SB 3), that was amended many times (overview of the latest version) last Thursday that allows lower income households and students with special needs to apply for an education savings account (ESA). It will allow an opportunity to access taxpayer dollars for education services that best meets students' needs instead of them too often being stuck at a public school that doesn't do so.

I'd prefer that the final product of SB 3 was more like the original so it would be a more universal ESA program. This would have allowed many more students the opportunity to use this program.

Regardless, SB 3 is a great step forward for students, teachers, parents, and Texas!

The bill will go to the House now and hopefully make its way to the Governor. It's got an uphill battle, but students and families should have choices in education, just like they do with so many other goods and services, besides only those with the means to afford it.

The Texas Public Policy Foundation along with several other organizations were a key part of the fight for passing SB 3. I had the honor of helping out in that process, as I was surrounded by many individuals who are passionate about providing students, parents, teachers, and all Texans the best opportunities to succeed in the education system.

​Here's my recent testimony that summarizes research on fiscal, academic, teacher pay, and economic effects of educational choice through ESAs.

Here is my paper, The Effects of Education Savings Accounts on Teacher Pay in Texas, co-authored with Dr. John Merrifield of the University of Texas at San Antonio that highlights the fiscal savings of ESAs and the resulting opportunities for increases in teacher pay. Here's a summary: "Although public school districts employ roughly 90 percent of teachers in Texas, teachers have little negotiating power in today’s labor market. Budget reallocations at public school districts (with fiscal savings of $165 million) and private schools from ESAs could increase teacher salaries in the first year, with some increasing by as much as $28,000. A more competitive teacher labor markets will gradually contribute to increases in teacher salaries beyond those facilitated by ESAs and improvements in working conditions. It's clear that the freedom to choose in education and teacher labor markets will benefit students, teachers, and all Texans."

Here is my paper, Economic Effects of a Universal ESA Program in Texas, co-authored with Dr. Marty Lueken of Ed Choice that summarizes the economic benefits, fiscal savings, and other positive effects of education choice in Texas. Here's a summary: "Expanding education choice is a smart and sound investment that Texas can make to grow the state’s economy and build a stronger society, creating better matches between students and their education will likely lead to fewer dropouts, which would improve social and labor market outcomes. By expanding school choice, will improve the quality of education for Texas children, lead to higher property values, and spur job creation."

Of course, the results of the passed SB 3 will be less than a universal ESA program in our studies, but the fact remains that by allowing student-centered funding to replace the currently fundamentally flawed school finance system of school district-centered funding, many more students will be able to best meet their needs and benefit in the process.

Let's hope that SB 3 becomes law and that it is the first step toward a universal ESA program in Texas!

Vance Ginn, Ph.D.​#LetPeopleProsper

I'm a free market economist based on the teachings of Chicago and Austrian schools of economics. I'm a classical liberal with interest in removing government barriers to competition to let people prosper. I grew up in Houston, Texas where I was a hard rock drummer who went on to be a first generation college graduate from Texas Tech University. I'm a recovering academic who now works at the Texas Public Policy Foundation in Austin.